FocusChina 2008 PVC imports fall, domestic demand to halt decline

28 January 2009 05:31[Source: ICIS news]

By Ng Hun Wei

SINGAPORE (ICIS news)--Polyvinyl chloride (PVC) imports into China in 2008 fell below 1m tonnes for the first time in 10 years, but there is cautious optimism that the decline could be arrested this year on the strength of domestic demand, traders and producers said on Wednesday.

The country only imported around 860,200 tonnes of pure PVC (HS code: 39041010 and 39041090) in 2008, compared with 1.014m tonnes imported the previous year, statistics from China's customs agency showed.

Import volumes were already lagging year on year by June but plunged further as the US financial crisis deepened in September last year, traders and producers said.

“There are many reasons why Chinese PVC imports are down this year but the global economic crisis is surely the most important one,” a Chinese PVC trader said.

“Without demand from the US and ?xml:namespace>Europe, China’s re-export industries basically have no need to import PVC,” the trader said.

Major economies, including China, looked set to suffer further because of depressed global demand, but some industry sources believed the country’s appetite for PVC imports was unlikely to diminish further.

“In fact, we are already seeing signs of demand picking up in December and January. With crude prices at such low levels, PVC imports are actually quite attractive for Chinese domestic buyers price-wise,” said an Asian PVC producer.

Growing demand from Chinese domestic buyers is expected to drive up demand for PVC imports into the country while its re-export market would remain in the doldrums amid the global economic slump, traders and producers said.

China’s re-export market was previously the main destination of PVC imports into the country. But with the fall of crude prices from record highs, PVC imports have also found their way into the Chinese domestic market despite the imposition of anti-dumping duties, industry sources said.

“I think the market dynamics are quite different from a year ago, or even six months ago. When crude and ethylene prices were at record highs, carbide-based PVC produced locally was often the cheaper option for Chinese domestic buyers. Not anymore,” said a southeast Asian PVC producer.

The price of calcium carbide was last week heard at more than $500/tonne (CNY3,420/tonne) in China’s domestic market, similar to levels heard just six months ago.

Crude prices have fallen by more than 70% to just over $40/bbl over the same period, while ethylene prices have fallen by a similar amount, creating a huge cost advantage for ethylene-based PVC producers.

“Even with anti-dumping duties of 5-12%, it still makes sense for Chinese domestic buyers to import PVC because of the huge cost difference between ethylene and carbide-based PVC”, a trader said.

Buying interest from the Chinese domestic market could potentially help make up for some of the demand destruction seen in the re-export market, traders and producers said.

According to industry estimates, China’s total PVC demand was around 9m tonnes in 2008. At least 70% of this demand was fulfilled by carbide-based PVC producers. But as local carbide-based PVC plants shut down or slash their operating rates due to negative margins, Chinese buyers have little options but to turn to imported PVC.

“Of course the situation can be easily reversed if crude prices start surging again. But given the current situation and growth projection, the Chinese domestic market will help support the PVC import market this year,” said a northeast Asian PVC producer, who expects Chinese PVC demand to remain at 9m tonnes in 2009.